India-Asean trade likely to cross $50 bn by 10

Written by Huma Siddiqui | New Delhi | Updated: Jun 30 2009, 08:46am hrs
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With the India-Asean (Association of South-East Asian Nations) free trade agreement (FTA) likely to be inked in August at the Asean economic ministers meeting in Thailand, India-Asean trade is likely to surpass $50 billion by 2010.

The FTA will enable member countries to reduce tariffs for more than 4,700 categories from January 2010 onwards, senior government officials told FE. Diplomats from some members of Asean like Vietnam, Malaysia and Indonesia opined that India should reduce the duties on the four productspalm oil, tea, coffee and pepper. The duty ranged between 50% and 60%.

India has agreed to cut import duties on crude palm oil by 37.5% and on refined palm oil by 45% by 2018.

Both India and Asean have attained growth in exports at rates higher than the global average over the last two-decades. The trade between the two sides accounted for an average of 9% of Indias total trade in the last three years. However, Indo-Asean trade, which has been growing at a compounded annual growth rate (CAGR) of 27% since 2000, stood at $38.37 billion in 2007-08.

Singapore and Malaysia have been Indias most prominent trading partners as far as bilateral trade between India and individual Asean countries for the entire period is concerned.

From 1997 to 2008, the two-way trade between India and Asean countries witnessed an approximate seven-fold increase from the level of $5.9 billion to more than $38.37 billion in 2007-2008.

With a trade volume of $5.83 billion in 1996, the East Asian Crisis gave a hammering blow to this impressive growth resulting in a very little growth in absolute terms for the following two years. The trade picked momentum post 1999-2000, both in absolute and percentage terms and is moving in the positive direction since then, explained officials.

Growth in Indias exports to Asean in recent years has been impressive as compared to other important destinations. As far as its imports from Asean countries are considered, the same is not true. Though it showed some improvement in the last year.

Talking to FE, Ficci officials explained to FE, Aseans position in Indias total trade relative to EU and North America has improved between 1997-98 and 2006-07. While the share of EU and North America in Indias exports has been constantly declining, the share of Asean has been on the rise. Similarly, shares of both EU and North America in Indias imports have been eroded in the last decade, but that of Asean recorded an increase.

In 1996, Singapore and Malaysia accounted for about 75% of Indias imports from Asean. Singapore continues to be among the top four investors for India. Indian investments in Singapore are also growing. The cumulative FDI inflow to India from Singapore during April 2000-November 2008 was around $6.34 billion. Bilateral trade between India and Malaysia amounted to $8.57 billion during 2007-08, an increase of 30.07% over 2006-07 when it was $ 6.59billion.

However, officials observed that there has not been significant change in the product composition of Indias major exports to Asean since 1991-92 with exception of electronic goods and sugar as some of the leading export item by 2001-02.

An assessment of shares commanded by India and Asean in each other global trade illustrates the asymmetry in market penetration. While Asean enjoys a pre-eminent position in Indias import market, Indias share in Aseans global imports has been a bit modest. In particular, while Singapore, Malaysia and Indonesia occupy fairly respectable share in Indias total imports, the converse is not true.

In contrast to Indias small and sluggish share in Aseans global imports, there has been a rise in corresponding figures for China over the years. A micro level analysis of Asean countries imports reveal that Chinese goods not only forced India to loose its market share in certain products (eg textiles & apparel for Indonesia; hides & leather for Malaysia as well as Singapore) but also out-performed India in the product groups where it had a growing share (for instance, stone/cement/ceramics for Indonesia; footwear for Malaysia; vegetable products for Philippines), Ficci officials said.

Similarly, increased intra-Asean imports made Indian products loose ground in the Asean market.